Sherry Hunt, a Citigroup quality-assurance vice president turned in evidence of purposeful fraud against Fannie Mae and Freddie Mac and now stands to gain as much as $31 million as her share of the fine.

Please consider Citigroup ‘Defrauded' Fannie, Freddie.
Citigroup Inc. (C), which last week admitted breaking Federal Housing Administration rules and paid a fine, also violated regulations for home loans sold to Fannie Mae (FNM) and Freddie Mac (FRE), according to a whistle-blower's complaint.

The bank "defrauded, falsified information or misled federal government entities" by selling or securing insurance for mortgages with defects such as improper appraisals and not reporting them as required, Sherry Hunt, a Citigroup quality- assurance vice president, said in her complaint, which was unsealed yesterday. It was filed under the False Claims Act in federal court in Manhattan in August.

Hunt's charges formed the backbone of the U.S. Justice Department's case against Citigroup, which paid $158.3 million in a Feb. 15 settlement and admitted that it certified loans for FHA insurance that didn't qualify. Her complaint provides additional details into the bank's broken mortgage-processing system. In last week's agreement, the government reserved the right to pursue criminal and other charges related to mortgages originated or underwritten by Citigroup and not insured by the FHA.

As a whistle-blower, Hunt's share of the settlement will be $31 million before taxes and attorney's fees, she said in a Feb. 15 interview.

For Citigroup, the third-largest U.S. bank by assets, the high defect rates could be costly. It might be forced to buy back substandard mortgages sold to government-controlled Fannie and Freddie, who buy or guarantee most U.S. mortgages.

Last year, Citigroup repurchased 6,600 loans from government buyers, an 89 percent increase from 2010, according to a presentation on its website. The bank set aside $1.2 billion to buy back defective mortgages as of the end of 2011. That's the most ever, and up from $969 million in 2010.

Hunt said Citigroup knowingly vouched for the quality of loans that were "deficient" in income documentation, had incomplete borrower job histories, appraisal problems, errors in closing paperwork, missing credit reports and miscalculated maximum mortgage amounts, among other flaws.

Some managers' compensation was tied in part to reducing the defect rate, Hunt said.

For certain types of home loans, Citigroup's "defect rate" -- the rate at which the underwriting raised questions -- was 80 percent, said Hunt, 54. Taxpayers are on the hook for over $180 billion in bailouts to Fannie and Freddie. Citigroup got off the hook with a $158.3 million fine, of which Hunt gets a bonanza jackpot of $31 million.

Meanwhile, fraud is everywhere, and no one has gone to prison or held remotely accountable.

Related

Nearly a decade since the housing bubble burst the dirty skeletons still emerge from the closet, and still nobody goes to jail. In the latest example of how criminal Wall Street behavior leads to zero prison time and just more slaps on the wrist, overnight Warren Buffett's favorite bank, Wells Fargo, admitted to "deceiving" the U.S. government into insuring thousands of risky mortgages. Its "punishment" - a $1.2 billion settlement of a U.S. Department of Justice lawsuit, the highest ever levied in a housing-related matter.

An alleged "worst case scenario" shows the FHA could lose as much as $115 Billion. Since these worst case scenarios are always famously optimistic, the best course of action would be to shut the agency down.
I was quoted as saying just that by the Heartland in Congressional Report Raises Spectre of FHA Bailout.

(Reuters) - The United States on Wednesday filed a civil mortgage fraud lawsuit against Bank of America Corp , accusing it of deliberately generating and then selling thousands of toxic home loans that later defaulted to Fannie Mae and Freddie Mac . U.S. Attorney Preet Bharara in Manhattan said in a statement that the sales had resulted in more than $1 billion of losses and "countless" foreclosures. He said the case is the U.S. Department of Justice's first civil fraud lawsuit over mortgage loans sold to Fannie Mae or Freddie Mac. ...